Buying a Solar System
When we discuss purchasing a solar system, it can be either in the form of an outright cash purchase, or some type of financing. Many people believe in true “ownership”, versus a third party owning the system on their rooftop (more discussed about that below).
Advantages of purchasing a Solar System
- Many people in this country believe (as my uncle used to say) “cash on the barrel” and ownership. Purchasing means true ownership and no one is looking over your shoulder as happens with leasing and PPA’s (see below).
- There is a HUGE tax incentive from the Federal Government to go solar, meaning if you have taxable income, you can reduce you are taxes with the investment tax credit of 30% of the cost of the solar system.
- Buying makes the most economic sense and the lowest cost of power.
- Freedom to take control back from the rising costs of power an unlimited control over rate hikes.
- The choice in determining what type and brand of solar panels an inverters you choose (unlikely seen in PPA’s where the provider makes the ultimate choice)
- No concern over transferability when selling your home
- Solar increases home values.
Disadvantages of purchasing a solar system
- You must write a large check or take out a loan to purchase the system.
- If you do not have a tax appetite or the ability to use the investment tax credit you in essence will be paying for the full amount of the system not the full amount less 26%.
- You also have the responsibility of the system. The reality of this, is that your solar contractor is on the hook for the workmanship portion of the system and that it was installed correctly. In addition, there are no moving parts with solar and that the chance of system failure is exceedingly small. Most likely, because you chose high quality panels and inverters that also listens the chance of system failure.
What is a solar Lease?
In the early days of solar, say the mid 90’s, the only people that decided to go solar had cash or the ability to borrow money to go solar. Like a car lease in that there is very low upfront payment and a fixed term and at the end of the term you give the car back. In solar, the lease term, is generally 20 to 25 years, with a fixed payment during the term. The solar lease has an option of a fixed rate for the entire term, or a rate that includes a small escalator for the term of the lease (usually around 2-3%, but generally lower than the rate hikes of the utility companies). The upfront payment in a solar lease is generally ZERO, and the lease company provides a guarantee of power output, as well as insurance, maintenance, and any possible repairs. With the solar lease, the lessor owns the system as well as any tax advantages that goes along with it. Well known lease providers are SunPower and SunRun.
Advantages of Leasing
- One of the biggest benefits of a lease is that you do not have to come up with large upfront capital to purchase assistant. Quite often we can provide a lease with nothing down come where your monthly payments are lower than the amount of your utility bill, so each month you actually are making money, without any investment.
- In many instances, the lessor is responsible for maintaining, insurance, and making sure the panels are producing as the least agreement states.
Disadvantages of Leasing
- One potential disadvantage of a solar lease is that there very long-term contracts this means you're going to be tied up paying a monthly payment to the lessor of the solar panels.
- A solar lease can possibly create problems if you are going to sell your home during the time of the lease. Usually, the lesser will require that if you sell your home during the lease term the purchaser of the home the new buyer can take over the solar lease. An issue that has arisen in the past is that the price of power might have come down less than the power cost in the lease, as well as the price of solar panels have dropped, making today's least price is cheaper than those in the past.
What is a solar PPA?
PPA is an acronym for Power Purchase Agreements. A 3rd Party purchases and installs the solar system, and you pay the 3rd Party for the power the system generates for a fixed period, usually 25 years. Like a lease, there usually is ZERO upfront payment. The 3rd party monitors maintains and insurers the solar system. Many people consider a PPA like that of your local utility company, in that you usually put no upfront payment, and pay for the power you use. Throughout the year, you will use more power in the summer for your swimming pool etc., so your bill will be higher in the summer months then generally in the winter months. with a PPA, you are only paying for the power your system actually generates. Like a Lease, the 3rd Party owns the system and receives any tax advantages that goes along with ownership. Well-known companies that use the PPA model are Sunrun and Sungevity.
Advantages of a solar PPA
- The advantages of a solar PPA are like that of a solar lease, most notably ZERO upfront.
- With a PPA, you are only paying for the power your system actually produces, so if your system goes down from any reason it is up to the 3rd party provider to fix the system at their expense.
- If your PPA has an escalator, it will generally go up at a slower rate than your local utility provider.
- Different from a lease, where you are actually renting the equipment in a lease, the PPA provides additional protection because you are only purchasing the power it produces.
- The advantages of a solar PPA are like that of a solar lease, most notably ZERO upfront.
- With a PPA, you are only paying for the power your system actually produces, so if your system goes down from any reason it is up to the 3rd party provider to fix the system at their expense.
- If your PPA has an escalator, it will generally go up at a slower rate than your local utility provider.
- Different from a lease, where you are actually renting the equipment in a lease, the PPA provides additional protection because you are only purchasing the power it produces.
Disadvantages of a solar PPA
- Similar disadvantages are for a solar PPA that are for a lease, most notably they are long term agreements that a purchaser of a home might not want to take over.
- A challenge that many people face is the cost of the power the system produces is high in the summer and low in the summer, and they are not able to have a levelized payment system they might be able to get with their local utility company.
